Life Without Apple Is Still Peachy for Some Fund Managers

BOSTON (TheStreet) -- Life without Apple (AAPL) just doesn't seem possible for most mutual fund managers, who have relied on the stock of the iPhone and iPad maker to juice returns for the better part of a decade.

But there are some maverick fund managers who, even with a large-cap mandate, haven't bought Apple, yet have done quite well without it.

Apple, now at $610 a share and with a market value of $568 billion, is the largest member of the S&P 500, at 4.6% of the benchmark. Its outsized presence and performance pretty much makes it a mandatory holding for mid- to large-cap funds, but it's owned by a lot of other funds as well.

At the end of the first quarter, 4,877 funds had a stake in it, holding a combined 69% of Apple's shares.

And they're surely all thankful for its existence, as Apple shares are up 51% this year, versus the S&P 500's 11.3% gain. Over three years, Apple is up an annual average of 70%, more than three times that of the index.

But Dan Culloton, Morningstar's associate director of fund analysis, cites a handful of large-cap funds with top performances in the large-blend category, with nary an Apple in sight.

Among them are Mairs & Power Growth ( MPGFX), Oakmark Select ( OAKLX) and BBH Core Select ( BBTEX).

The $2.3 billion Mairs & Power Growth fund has returned 13% this year, putting it in the top 11% of large-blend funds in terms of performance, and it has a three-year annualized return of 19.3%, placing it in the top 23% of such funds.

Manager Bill Frels "takes a deliberate and methodical approach to investing," Morningstar says. "Frels buys steadily growing businesses that he believes are trading at reasonably cheap prices."

In addition, "the fund's turnover ratio rarely gets above 5%, while its typical peer's is roughly 50%," says Morningstar, and that's with a 46-stock portfolio. A 5% turnover means it takes 20 years for the fund to rotate out of all its holdings.

The $3 billion Oakmark Select fund, managed by revered fund manager Bill Nygren since 1996, and also a large blend fund, is up 14.8% this year, putting it in the top 3% of performers in its category. And it's up 23% annually over three years, making it a top 4% performer among its peers for that period.

Morningstar says its long-term "success owes to the deft execution of a sensible strategy," focused on a relatively tiny 20-stock portfolio that "has been vigorously scrubbed for fundamental health and business-value growth potential."

The $1.6 billion BBH Core Select "follows a similar playbook to Nygren's, using fundamental research to undercover higher-quality stocks trading at temporary discounts," Morningstar's Culloton said.

The fund is up 9.9% this year, a performance that puts it in the 76th percentile among its large-blend peers, but over five years its 6% annualized return places it in the top 1% of its peers.

But there has to be some sour grapes for those not owning Apple. "It's doubtful even these managers are bragging about not owning one of the market's best stocks of recent years," Culloton said, "but their resilience is testimony to their discipline."

Here are eight stocks that the three funds mentioned above have relied on to boost performance, sans Apple, listed in inverse order of the number of analysts' "buy" ratings they have:

8. Discovery Communications ( DISCK)

Company profile: Discovery, with a market value of $13 billion, produces television content and its networks include TLC, Animal Planet, Investigation Discovery, and it has a 50% interest in OWN, Oprah Winfrey's new cable channel. It is Oakmark Select fund's largest holding at 8.4% of the portfolio, or about 3% more than the next largest holding.

Investor takeaway: Its shares are up 28% this year and have a three-year, average annual return of 42%. S&P does not rank the stock and it does not get much analyst coverage.

Morningstar analysts say the company "owns the rights to the 100,000 hours of programming and footage in its video library, so it can generate and repurpose new content at low incremental cost. (It) benefits from establishing its channels on international pay TV platforms over two decades ago."

7. Graco ( GGG)

Company profile: Graco, with a market value of $3 billion, manufactures fluid-handling equipment used in manufacturing, processing, construction, and maintenance industries. The firm operates in three segments: industrial, contractor and lubrication. It is Mairs & Power Growth's fourth-largest stock at 4.4% of the fund and a holding since 1993.

Dividend Yield: 1.61%

Investor takeaway: Its shares are up 38% this year and have a three-year, average annual return of 37%. Analysts give its shares two "buy" ratings, two "buy/holds," and six "holds," according to a survey of analysts by S&P. S&P says its "buy" recommendation "is based on more favorable trends in emerging regions and new product launches, along with our valuation metrics."

6. H.B. Fuller ( FUL)

Company profile: H.B. Fuller, with a market value of $1.6 billion, is an international manufacturer of adhesives, sealants, paints, and specialty construction products. Mairs & Power Growth has owned its since 1997 and it's now 4% of the fund.

Dividend Yield: 1.04%

Investor takeaway: Its shares are up 43% this year and have a three-year, average annual return of 26%. Over 10 years, it has an annualized return of 8.7%. Analysts give its shares two "buy" ratings, two "buy/holds," and four "holds," according to a survey of analysts by S&P.

Analysts expect it will earn $2.18 per share this year. S&P has it rated "hold," on valuation concerns but says the company will be able to offset "higher raw material costs through price increases and the release of new and reformulated products."

5. Valspar ( VAL)

Company profile: Valspar, with a market value of $5 billion, is a large paint and coatings company. Its products are used in the architectural, industrial, packaging, and automotive-finishing industries. It's Mairs & Power Growth's largest holding at 4.85%.

Dividend Yield: 1.58%

Investor takeaway: Its shares are up 31% this year and have a three-year, average annual return of 31%. Over 15 years, it has an annualized return of 9.7%. Analysts give its shares three "buy" ratings, two "buy/holds," and 10 "holds," according to a survey of analysts by S&P. S&P has it rated "hold," on valuation concerns. Analysts expect it to earn $3.15 per share this year.

4. Diageo ( DEO)

Company profile: Diageo, with a market value of $70 billion, is the world's leading producer of branded premium spirits, including Johnnie Walker scotch, Crown Royal whisky, Smirnoff vodka, Captain Morgan rum, Bailey's Irish Cream, and Guinness stout. It also produces and markets beer and wine. It is 4.2% of BBH Select's portfolio and a holding since the third quarter of 2008.

Dividend Yield: 2.07%

Investor takeaway: Its shares are up 17% this year and have a three-year, average annual return of 33%. Analysts give its shares four "buy" ratings, two "buy/holds," one "hold," and one "weak hold," according to a survey of analysts by S&P. Analysts estimate that it will earn $4.07 per share this year and $4.40 in 2013, an 8% rise.

3. TRW Automotive Holdings ( TRW)

Company profile: TRW, with a market value of $5.5 billion, is the world's largest developer and supplier of active and passive automotive safety systems, including braking, steering, and electronic components. It operates in 26 countries. It makes up 4.7% of Oakmark Select's portfolio, and is its eighth-largest holding.

Investor takeaway: Its shares are up 35% this year and have a three-year, average annual return of 79%. Analysts give its shares six "buy" ratings, four "buy/holds," and one "hold," according to a survey of analysts by S&P. S&P, which has it rated "strong buy" says "TRW should benefit from rising global automotive volume and higher demand for safety equipment in the U.S. and other markets, but weakness in the important European market should be a drag."

2. TE Connectivity ( TEL)

Company profile: TE, with a market value of $15 billion, is an international manufacturer of connectors and electrical components. It posted sales of $14 billion in 2011. It's Oakmark Select's second-biggest holding at 6% of the portfolio.

Dividend Yield: 2%

Investor takeaway: Its shares are up 17.4% this year and have a three-year, average annual return of 30%. Analysts give its shares seven "buy" ratings, four "buy/holds," and four "holds," according to a survey of analysts by S&P. Analysts estimate it will earn $3.01 per share this year. S&P has it rated "hold" on valuation concerns.

1. Comcast ( CMCSA)

Company profile: Comcast, with a market value of $81 billion, merged with NBC Universal last year, resulting in a media and entertainment conglomerate that has diversified interests in cable, broadcasting, film and theme parks. It's BBH Core Select's second-biggest holding at 4.9% of the fund. It makes up 5% of Oakmark Select fund.

Dividend Yield: 2.19%

Investor takeaway: Its shares are up 26% this year and have a three-year, average annual return of 30%. Analysts give its shares 16 "buy" ratings, eight "buy/holds," and seven "holds," according to a survey of analysts by S&P.

S&P has it rated "buy," and says "we see ample financial flexibility for continued strong return of capital to shareholders through share buybacks and dividends."

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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